Parties in Poland Battle Over Whether to Introduce Euro

Core or Periphery?Poland's Battle Over Embracing the Euro

Prime Minister Donald Tusk and the Polish business community want to boost competitiveness by introducing the euro. However, the opposition and a majority of Poles believe the country's independence and stability could suffer.

It's a typical paparazzi photo. Chris Martin, lead singer of the band Coldplay and the husband of actress Gwyneth Paltrow, steps out of his New York townhouse with his young daughter, Apple, on his arm.

It isn't really the sort of photo that interests Slawomir Piwowarczyk, from Nowa Huta near Krakow, but he studied this one very carefully. He had noticed the yellow soles on Apple's shoes, a trademark of his company, Gucio. He even owns the patent. "Do you think the stars know where their children's shoes are from?" he asks.

Piwowarczyk produces 700 pairs a month -- by hand -- with his wife Beata, his mother-in-law and three employees in a barn on the grounds of the former Lenin Metal Combine. His design for children's shoes is brilliantly simple and has won several awards.

He is currently writing a business plan, and when he's finished, he wants to apply for European Union funds to build a real production facility. "We sell 70 percent of our shoes abroad, through the Internet," Piwowarczyk says. "As an exporter, I feel that it's high time that Poland introduces the euro."

Many Polish business owners who have established companies in recent years and are now hoping for a breakthrough into the European Union agree. Since the fall of communism in 1989, Poland has become an EU member that has developed from a backward, agricultural country into a prosperous nation. Now liberal-conservative Prime Minister Donald Tusk wants to take the next step. He has announced his intention to hold a "national debate" in the spring over Poland's accession to the euro zone. "How should we decide?" he asks. "Do we want to be part of Europe's core in the future or remain along its periphery?"

With its national debt at only 56 percent of GDP and its currency, the zloty, relatively stable, the stability criteria are hardly an issue for Poland. The only minor sticking point is that last year's 3.1 percent budget deficit is slightly higher than the deficit-to-GDP ratio of 3 percent demanded by the Stability and Growth Pact.

The parliament is a much bigger hurdle. Replacing the zloty with the euro would require an amendment to the constitution with a two-thirds majority, which Tusk doesn't have. The right-wing nationalist opposition headed by Jaroslaw Kaczyski has announced its intention to sharply oppose the plan.

Stiff Resistance

Poland is headed for the kind of culture war it hasn't experienced since it joined the European Union in 2004. The government camp argues that the country needs the euro to remain competitive. But the conservative-nationalist opposition believes that Poland's independence is at risk. It argues that, owing to German dominance, if Poland joins the euro zone it will lose the national character it developed in difficult struggles that claimed many victims.

"We are about to face a battle," says Henryka Bochniarz, president of the Polish Confederation of Private Employers. She called for "political leadership" in a letter she wrote to the premier. "We need a business plan," she says. "Where do we see Poland in 10 years?"

About 75 percent of Polish exports go to EU countries. If the country joined the euro zone, one of the most important benefits is that the transaction costs caused by fluctuating exchange rates would disappear.

Piwowarczyk, the shoemaker, says that he can hardly estimate at the beginning of a month what he will have made at the end. "I feel every exchange rate fluctuation directly in my wallet," he says.

But according to the most recent polls, 58 percent of Poles are skeptical about the euro. Despite the Europe-wide recession, Poland consistently generated high growth rates, but now the crisis has arrived. Poland's 38 million people are holding onto their money, triggering a sharp drop in domestic demand. The Polish economy grew by only 2 percent in 2012, compared to 4.5 percent in 2011.

It is mostly older Poles, the unemployed and rural residents who are afraid of the euro. They fear a drastic rise in food prices. These are the people opposition leader Kaczyski targets with his message. The polls sometimes show his Law and Justice Party dead even with Tusk's Civic Platform Party.

Kaczyski is fighting Tusk's pro-European approach. The first showdown is expected in late February and early March, when the Polish parliament, the Sejm, will vote on ratification of the European fiscal compact, the agreement championed by German Chancellor Angela Merkel that obliges signatories to implement balanced-budget legislation and accept automatic sanctions for violating the new deficit rules

Krzysztof Kawecki is one of those organizing resistance to the pro-European approach. He is the director of a private business college in Warsaw and a member of the center-right Right Wing of the Republic party. It is even more conservative than Kaczyski's Law and Justice Party, though they campaign on a joint list. Last fall, Kawecki led hundreds of demonstrators in a "march for the zloty" in front of the presidential palace.

"We think that EU integration goes much too far," says Kawecki. "We don't want a United States of Europe, but a confederation of independent national states." The fiscal compact, he says, gives Brussels a say in fiscal and budgetary policy. Kawecki believes that it would be "suicidal" to introduce an ailing currency like the euro today. The next march for the zloty is already being planned, he adds, "and there will be many more after that."

I fear our Polish friends are debating Euro adoption based on a parameters of image and a desire to feel integrated into a modern Europe as opposed to sensible economic policy.
Would adopting the Euro really help Polish [...]

I fear our Polish friends are debating Euro adoption based on a parameters of image and a desire to feel integrated into a modern Europe as opposed to sensible economic policy.
Would adopting the Euro really help Polish exporters? Only marginally. The shoemaker here exports to non Euro countries: Czech, Russia, UK, US, Canada. Whatever uncertainty and consequentially increased transaction costs are presented in having to balance the books with units sold into a foreign currency are marginal, at best, so long the zloty is stable. To the extent the cost is a factor, adopting the Euro only reduces it with trade within the eurozone. Sweden, Denmark do just fine trading with Europe and the world without the Euro. We have advanced computers that can calculate the conversions instantly. Different currencies are not the large wall to trade it was made out to be.
Most of the internet sales are going to be done with credit cards. Visa and Mastercard do most of the work and absorb most of the risk.
If the benefits of the single currency are marginal, what of the risks? They are substantial. As we learned in comparing the US debt situation with EU countries, there is a lot to be said for having one's debt denominated in a currency you control. While much of Polish debt is already likely not in Zlotys, none of it will be if they adopt the Euro. Deliberately hard or soft currency policies during economically may not be a good option in all cases, but why take it off the table as a possibility for all time unless there is something to be gained?
Regardless of where you stand on the economic benefits of the single currency and its not worth while caught up in the image of the euro and the symbolism it implies or does not. Nationalists do no favours arguing that the Euro will make Poles less Polish. Pro-Euro groups do no favours arguing that Conservatives are reactionary and retreating from globalization behind a national currency.